“Tips For A Successful Commercial Lease Contract” written by Mike Marko
Need to lease your commercial or business property?
For leasing a commercial property, you need to create a professional lease contract. This is a document that records the terms of the agreement between you and your tenant.
A commercial lease contract often differs from a residential lease contract in at least one way, though – that’s the amount of negotiation that often happens prior to its finalization.
Most residential lease contracts are drawn up with little participation from the tenant. All a residential tenant often does is read the contract and sign it.
A commercial tenant, however, is likely to pick at and renegotiate various parts of his lease contract. Commercial tenants often get to do this because they have unique concerns, being business owners or representatives.
Furthermore, they also pay vastly larger rents than residential tenants, which makes their bargaining power more considerable.
Even if a commercial lease contract can be negotiated, however, there are parts of it that more or less remain constant. If you want to create a successful lease contract, you should know what these are.
You also need to understand how to negotiate favorable lease terms that will help in creating a successful leasing. In this article, we’ll talk about the things to consider for a successful lease contract.
Things to Consider for a Successful Lease Contract
A property manager should diligently prepare when starting to lease a property. One way of preparing is to create a lease contract that is free of errors.
As a property manager, you need to consider certain rules in creating this contract. As I said earlier, there are some points that you generally need to cover whenever a commercial lease contract is involved.
If you’re ready, let’s go over those points. That way, you can create the best commercial lease contract for your commercial property.
Determine the Leasing Term
The first thing to consider in creating a lease contract is determining the leasing term. This much is true for both residential and commercial lease contract creation.
Agree on the start and end date of the tenancy period. After that, specify the agreed-upon dates in the contract.
It is worth noting that leasing terms for your average commercial lease contract will be longer than for the average residential lease contract.
That’s because commercial tenants typically need longer use of a property than residential ones. Stability tends to be a huge factor in commerce, after all.
The cost of move-in and move-out for businesses tends to be much higher too. That means businesses try to limit how often they have to incur those expenses.
Have the Time to Review the Lease
Examine the lease contract properly by reviewing its content. If possible, make a review of the contract from start to end.
It’s important for you to meticulously review the commercial lease contract you’ve made. This way, you can easily detect a possible future fraudulent activity like misappropriation of funds.
Reviewing all agreements under the payment clause will also help.
Here are a few things to look at when reviewing your lease contract.
Relocation rights is a decision made by the property manager to relocate the tenant’s business to another space.
As a property manager, you need to give tenants a relocation information notice. This notice will usually take 30 business days.
Tenants on the other hand can apply for relocation assistance after the given notice. This is assistance given to the tenant to help them in transferring their things.
It’s the tenant’s responsibility alone to arrange for the transfer of all utilities to the new location.
Tenant exclusives usually refer to agreements between the property manager and the tenant that the former shouldn’t lease to another tenant with a similar business.
This is usually for properties that are capable of housing more than one commercial tenant. This protects the tenant from sudden competition in the same area.
As a property manager, it’s advisable to carefully look at the fees in the lease contract.
By reviewing the payment clause, you can check whether or not you have created some hidden fees that aren’t cost-effective, whether for you or your tenant.
Such inconspicuous additional fees are hidden on a tenant’s monthly statement. You need to be sure that you have reviewed the tenant’s monthly statement in the contract.
And make sure that only the agreed-upon payments should be in the contract.
Check Your Maintenance and Repair Clauses
State who is responsible for the maintenance and repair by stipulating it clearly in the lease contract.
This responsibility is mostly on the shoulders of the property manager; however, sometimes it’s on the tenants.
Include in the lease contract the amount of payment the tenant must pay for this clause. This usually goes into a monthly process of payment.
Specify too the common area maintenance (CAM) that is covered by the maintenance and repair fee.
Common Area Maintenance (CAM)
Common Area Maintenance fees represent additional money a tenant pays over the base rent.
These are meant to cover additional expenses that the property manager may incur to manage other maintenance areas.
Inclusion of the Common Area Maintenance (CAM)
What’s included in Common Area Maintenance may vary based on the commercial lease contract. One lease contract may state that the CAM covers only one part of the property — another may state multiple areas.
Typically, CAM includes payment for the parking lot, landscaping, sidewalk, and other parts that concern the property. These are generally considered “common areas” in a property.
Don’t leave this up to interpretation in your own lease contract, however. It’s better to be specific than vague in this particular area.
That way, you and your tenant are never in any doubt as to what is in whose responsibility.
Final Thoughts on a Commercial Lease Contract
In this article, we talked about the tips for crafting a successful commercial lease contract.
A property manager should make themselves diligent prior to leasing a property. It’s advisable too to conduct a lease contract review from start to end.
Before the signing of the contract, make sure that you have made everything clear, from the payments to all the rights that tenant and you both have. Through this, you can assure that everything is in control.
Always determine the leasing term and have the time to review the lease contract properly. Don’t forget to check the maintenance and repair clauses.
You also need to remember that all areas in the premises may require an additional expense, maintenance-wise. Some may go under the Common Area Maintenance (CAM). It’s an additional payment of the base rent.
If you have further questions about creating a lease contract, feel free to comment below.
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